Umbrella (or Personal Liability) insurance is a term that is brought up often in the financial planning world. But what is it, exactly? And why is umbrella protection an important piece of someone’s financial puzzle?
What It Is:
An umbrella policy is a type of liability insurance that you can purchase in increments of $1 million worth of coverage. Think of it as a “back up” or contingency plan for your other basic liability policies, such as your auto, homeowner’s, and/or renter’s insurance. It’s meant to cover any excess or additional liability claims that exceed the limits of your basic liability policies.
Why You May Need It:
You’ve diligently saved and accumulated funds for your long-term financial independence. But if you’re found liable or at fault for something (like causing a serious car accident with injuries, or having a house guest become injured while on your property) and the damages owed are more than what your homeowner’s or auto insurance policies will cover, the remaining amount owed falls to you. Instead of running the risk of having to deplete your hard-earned savings and investments, or maybe even having your future earnings at risk, an umbrella policy would kick in and may cover any remaining amount owed up to the coverage limit of the policy.
Obtaining a Policy:
Most insurance carriers offer umbrella policies. If you already have your auto and homeowner’s policies through the same carrier, it’s usually best to start by getting a quote there since many carriers provide multiple-policy discounts. The yearly premium is often only $100-200 per $1 million of liability coverage, making it pretty cost effective given the level of coverage you receive.
While obtaining a policy is usually relatively easy, there are a couple things you’ll want to keep in mind:
- Most carriers require that you already meet certain liability coverage maximums through your underlying auto and homeowner’s policies before they’ll issue an umbrella policy.
- You’ve probably been wondering why there’s a picture of me and one of my dogs, Riot, as part of this article and what on earth a dog has to do with umbrella insurance, right? Well, purchasing umbrella insurance could be a little trickier if you happen to own a dog (or 3 like I do…). You might not be able to get an umbrella policy through many carriers if you happen to have a four-legged canine whose breed often falls on “restricted breed” lists living in your home. The most common breeds that are on these lists include (but aren’t limited to): German Shepherds, Rottweilers, Bully Breed/Pitbull type dogs, Siberian Huskies, Dobermans, Chows, Mastiffs, Great Danes, and Akitas. Rest assured, though, if you happen to own one of these breeds you still have some options – as some carriers don’t have dog breed restrictions.
While we hope that no one ever has to use or file a claim against an umbrella policy, it’s better to be safe than sorry and know that you’re protected if an accident were ever to arise. Still have questions about umbrella insurance or whether you have appropriate insurance coverage limits based on your particular financial situation? Woodward Financial Advisors is here to talk and help – so let’s chat.
Written by Roni Pflueger, CFP®